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UK households with mortgages remained the hardest hit by inflation in March while those who owned their homes outright were least affected, official figures show, reflecting the ongoing effect of higher borrowing costs. 

Household costs for mortgagors were 5.5 per cent higher in March than a year earlier, with the annual rate of increase slowing from 5.9 per cent in February and 12.6 per cent in March of 2023, the Office for National Statistics said on Thursday.

In contrast, UK household costs for outright owner occupiers rose by just 3.3 per cent in the year to March, the ONS said. 

Overall, household costs rose 4.4 per cent in the year to March, down from an annual rate of 5.3 per cent in January and 12.3 per cent a year earlier. 

The figures show why Prime Minister Rishi Sunak is struggling to persuade homeowners — a key group of voters that have traditionally been more likely to back the Conservatives — that the economy is on the mend.

Mortgage interest payments have risen by more than a third over the past year, reflecting monetary tightening by the Bank of England that took the central bank’s benchmark interest rate to a 16-year-high of 5.25 per cent.

Recent data has knocked hopes of an imminent rate cut by the BoE, meaning mortgage rates are also likely to take longer to come down.

Many voters blame this on the legacy of Liz Truss’ shortlived government, and her disastrous “mini” Budget of September 2022, which triggered turmoil in financial markets.

Jeremy Hunt, chancellor, on Thursday rebutted accusations that Truss’s actions were still damaging homeowners, telling the BBC that higher borrowing costs were due to “global reasons”.

The ONS’s quarterly data on household costs offers a closer reflection of households’ “lived experience” of price increases than the measure of consumer price inflation targeted by the BoE.

Recent data has knocked hopes of an imminent rate cut by the BoE. In April, the headline rate stood at 2.3 per cent, after falling less than expected from 3.2 per cent March, following the latest drop in regulated energy bills. 

The ONS’s household cost index, which the agency began publishing last year, shows how rising prices affect different socio-economic groups. Unlike CPI, it includes the outgoings faced by households from changes in mortgage rates, stamp duty and other costs on property purchase. 

The ONS said the sharp rise in mortgage costs was the main reason why high earning households, which are more likely to have mortgage debt, had experienced higher inflation than those on lower incomes over the past year.

The agency also explained why said families experienced higher inflation than those without children, and why those of working-age fared worse than pensioners.

However, the ONS noted this did not “necessarily reflect the longer-term picture”. Over the past five years, the 28.6 per cent increase in costs experienced by low-income households was slightly larger than the 28.2 per cent increase faced by those on high incomes.

Poorer households were harder hit earlier on by the jump in energy and food inflation, which has now moderated, while richer households are more affected both by higher mortgage costs and by a more recent rise in the cost of going out to restaurants and hotels.

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